Although 2010 is an estate tax-free year, under a tax law passed in 2001, the tax returns on Jan. 1, 2011, with a top rate of 55 percent and a $1 million exemption.
With such a low exemption, as many as 13 percent of farms and ranches whose owners pass away could owe estate taxes next year, according to USDA.
The American Farm Bureau Federation suggests increasing the exemption level to $5 million, adjusting for inflation and reducing the maximum rate to 35 percent.
Estate taxes, which are set to be reinstated at the beginning of 2011 with only a $1 million exemption and top rate of 55 percent, could be especially damaging for farm families, according to agricultural organizations participating in a news conference at the National Press Club in Washington D.C.
“Eighty-four percent of farm assets are real estate-based,” said American Farm Bureau Federation president Bob Stallman. “When Uncle Sam comes to pay his respects, surviving family members without enough cash on hand may be forced to sell land, buildings or equipment they need to keep their operations going.”
Although 2010 is an estate tax-free year, under a tax law passed in 2001, the tax returns on Jan. 1, 2011, with a top rate of 55 percent and a $1 million exemption. With such a low exemption, as many as 13 percent of farms and ranches whose owners pass away could owe estate taxes next year, according to USDA.
A higher exemption and lower rates would give farmers and ranchers a better chance to remain in operation when transferring from one generation to the next, Stallman said. AFBF is calling on Congress now to provide a permanent estate tax provision that would increase the exemption level to $5 million, adjust it for inflation and reduce the maximum rate to 35 percent.
“As farmers and ranchers we continue to stand by our goal of eliminating death taxes, which amount to little more than double taxation since the income is taxed first when it’s earned and again when it is transferred to heirs,” said Stallman.
According to AFBF, estate tax reform must also include stepped-up basis, which limits the amount of property value appreciation subject to capital gains taxes if the assets are sold. Because farmland typically is held by one owner for several decades, setting the basis on the value of the farm on the date of the owner’s death under stepped-up basis is an important tax provision for surviving family partners.
“With estate taxes, farm families’ heartache is felt well beyond the gates of their operations as the rural communities and the businesses we support also suffer when farms and ranches downsize or disappear,” said Stallman. “Further, when estate taxes force farm families to sell off land to pay the taxes, farmland close to urban centers that is sold can be lost forever to development.
“In essence, estate tax relief is not only about a cattle operation in Texas, it’s also about the family in New York City sitting down to a steak dinner,” concluded Stallman.
“The 2011 change to the estate tax law does a disservice to U.S. agriculture — an industry that consistently provides a safe, abundant and affordable supply of food and fiber to this nation and the world,” said Taylor Slade, a Williamston, N.C., cotton and peanut producer, whose family farm has been in business since 1722.
Slade said that farming is a land-based, capital intensive industry with few options for paying estate taxes when they come due. Farms as well as much of cotton’s infrastructure, which creates key employment in rural areas, would be hard-hit.
Slade, a National Cotton Council delegate and a past president of the North Carolina Cotton Producers Association, added, “The current state of the economy, coupled with the uncertain nature of estate tax liabilities, just makes it difficult for family-owned farms and ranches — which face the same economic challenges as other small businesses — to make sound business decisions.”
As much as 80 percent of cotton production occurs on farms that would be affected by an estate tax with a $1 million exemption, according to a NCC news release. In the Mississippi Delta and Southeast regions, for example, average cropland values equate to just 333 to 500 acres necessary to reach $1 million in assets, and this simple approach overstates the number of acres because it does not account for the value of machinery and buildings.
Slade stated that while the NCC supports the complete elimination of estate taxes, the short term may require a compromise that would be less draconian than the reinstatement of the $1 million exemption. He says an acceptable intermediate outcome would include raising the exemption to no less than $5 million per person and reducing the top rate to no more than 35 percent. He said it also is imperative that the exemption be indexed to inflation, provide for spousal transfers and include the stepped-up basis.
The NCC believes this formula “will provide permanent and meaningful estate tax relief — a reform that will strengthen the business climate for family farmers and ranchers while ensuring agricultural businesses are passed down to future generations,” Slade said.
Other organizations that participated in the news conference included the American Soybean Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Corn Growers Association, National Farmers Union, National Milk Producers Federation, National Pork Producers Council, and Public Lands Council.